Excellence

"High Achievement always takes place in the framework of high expectation." - Charles Kettering



Sunday, September 19, 2010

2010-2011 ECSD Budget Highlights

Click on the post for a link to the ECSD Fund summaries posted in the Review last week in compliance with posting of the budget prior to the Annual Meeting to set the Property Tax Levy. I'm going to attempt to explain school finance here. It may be a complete failure, but here goes:

ECSD budget is composed of six funds:
  • Fund 10, the operating budget which defines all transactions both as revenue income and expenditures from all sources to operate the schools.
  • Fund 21 which describes transactions regarding donations.
  • Fund 27, which describes Special Education funding. It is a "flow through" fund because it never really parks itself in our possession. It flows in as revenue and flows out equally as expenditure.
  • Fund 30, which describes our Debt Service transactions (how we pay off our High School and other loans).
  • Fund 50, Food Service Transactions.
  • Fund 90, Package Cooperative Fund (I think this is the Fund from which our CESA 2 cooperative service shared programming is funded). This also operates as a flow-through fund.

To give a very broad brush summary of all of these funds, only one of them (Fund 21, Donations) is projected to operate in the black for 10-11. Two of them operate in a flow through capacity and are therefore budget neutral (Fund 27 and Fund 90). Fund 10, the school operating budget, projects to spend $66,492 more than it collects in revenue. The debt service Fund 30 has stemmed the hemorrhage of over-spending next year from over $30,000 in each of the last 2 years to only $5544 next year. They managed this through refinancing a portion of the debt over the summer. About blinking time, I think. Food Service Fund 50 projects to spend $2401 more than it takes in revenue and fees this year. Last year the deficit was a little over $7000. I guess that alacart thing isn't working out so well for them after all. Even raising the lunch fees twice in three years hasn't helped this Fund. All in all, expenditures are projected to exceed revenues by $74,437 for those three funds. This just goes contrary to my inner miserly soul. It's never acceptable to spend more than you make. Take into account the bleak budget projections for the next state biennium budget and you're asking for budget misery and an empty fund balance in short order.

Fund 10 is the "budget" that the school board works with all year long to track spending and revenue. Expenditures from this Fund have accounted for 76-79% of net total expenditures in ECSD for the last two years. It is this Fund that the finance committee of the whole scrutinizes and approves transactions for every month. Over the summer, the finance committee approved refinancing part of the district loan, which changed some parameters in Fund 30. But the day-to-day fund that the school board focuses on is Fund 10. This is the fund to which the state aid and local property tax is deposited. Every year the brainiacs in Madison decide what "per pupil expenditure" they will shell out for each district. That process alone requires a PhD in finance to adequately understand. The state furiously attempts to "equalize" school aid through a complicated equalization formula. For the last three budget cycles, the state aid to ECSD ranged between 67 and 68% of all revenue flowing into Fund 10. Property taxes make up the bulk of the balance of revenue flowing into Fund 10. Federal funds, open enrollment and other state sources also contribute to Fund 10, but usually comprise only about 5% of the revenue streams for Fund 10.

The decision as to the magnitude of state aid to the district is not usually finalized until October, after the Annual Meeting. Once this is known, then the School Board is able to set the final tax levy. The Annual Meeting seeks permission from the electorate to set the levy. My experience on the board has been that the budget placed in the paper and brought to the Annual Meeting is a "worst case scenario" budget so that the district can request of the constituents at the meeting permission to levy a certain amount that would be the MAXIMUM required. Other districts don't have such a gifted business manager as we are lucky to have in our own Ms. Olsen. If the state contribution is higher than the "worst case scenario" brought in August, the local dollar contribution can be reduced to set the tax rate. As I understand it, the proposed Total Levy couldn't be increased without another meeting for taxpayer approval.

Last year, the state unexpectedly increased our aid by 4%, which allowed a decrease in the Local Revenue portion of the Fund 10 revenue stream, from 4.795 Million Dollars to 4.755 Million Dollars. Many of you may be wondering "How is the magnitude of the local tax levy calculated? If the local property tax total contribution to Fund 10 for last year went down, why the &*^() did the tax levy go up last year?" That is a good question, grasshopper. There are two parts of the tax levy for ECSD and, I suppose, for most school districts. The first part is the property tax required to maintain the Fund 10 district operating budget. The second part is the funds required to meet our Debt Service Fund 30 obligations (pay off our loan). Even though the unexpected boon from the state allowed the district to reduce the property tax contribution to Fund 10 last year, the amount due on our loan increased by about 5% last year, causing a net increase of 1.18% in the total levy in dollar amount.

In anticipation of a dismal state contribution next year, Deb Olsen has wisely projected less than 1% increase in state aid to Fund 10 next year. Even if every budget line item remained the same next year, the 5.8% increase in the Debt Service portion of our finance obligations would increase our total Tax Levy by 1.95%. Now take into account that the district anticipates spending $645,909 more this year than last year. This is more than double the magnitude of the increase in spending between school years beginning in 08 and 09. $478K of that $646K (74%) increase this year is in the "Instruction" line item, which includes all parts of the salary and benefits. That may seem high until you see that instruction between the previous 2 years increased by $290K among total expenditures that increased by only $317K, accounting for over 90% of the increase in expenditures last year. I surmise from this data that our district insurance rates are skyrocketing. The good news that can be taken away from perusing the budgets is that last year seems to have ended with $168K less spent than expected, which went into the Fund balance, immediately to be nearly completely decimated by the deficit budget written for this year.

The final piece of the tax puzzle is property value because tax bills come based on the calculated "mill rate" for the district, expressed in dollars owed per thousand in property value. Mill rates are calculated by a lengthy but straightforward procedure. First, the total local revenue value required to meet district obligations is determined. We'll call this R. Next, the sum of the total district property value from all cities and townships within the district is divided by 1000. We'll call this P. R divided by P will give you the mill rate owed by each property owner as local revenue to support the school district. Our current mill rate is 10.80. A home valued at $200,000 cost its owner $2160 in taxes for the school district only last year. The rest of your property tax bill supported city services, county services, U-Rock, Blackhawk, etc etc etc. I looked up the 2010 equalized value for Evansville online, which showed a decrease in equalized property value of 3% both last year and this year. If we assume that the rest of the district has a similar decrease in value, that means that a home considered to be worth $200,000 last year was considered worth $194,000 this year. If the total tax levy was unchanged, that home would still be responsible for supporting the district with $2160 in revenue. The mill rate has now increased from $10.80 per thousand to $11.13 per thousand. Same tax bill in dollar value, but the rate has increased because the property value fell. Now let's increase the revenue provided by this theoretical house by 6.99%. The new tax bill for the school district only comes to $2311. The mill rate is now $11.91 per thousand dollars of property value. The local school district portion of your property tax bill has gone up 6.99% when expressed in dollars, while your rate has increased by 10.29% due to decreasing property values. While it's sobering that the property values have decreased again this year, most of us are only concerned about the dollar value owed for taxes. Unless the state has a miracle discovery of billions of dollars somewhere and sends us more money than expected again this year (unlikely!), I predict that this preliminary budget that Ms. Olsen has prepared will remain and the 6.99% increase in Tax Levy will be necessary.

I hope that helps explain some of the mystery of School Finance. It always perplexed me and continues to find new ways to seem unnecessarily complicated to me. The goal of public education ought to be to provide equivalent education (which implies equivalent funding for every school) for all students from Alaska to Florida and all points between. One need only view the results of national standardized tests like the ACT and SAT to be disabused of this quaint notion. It is a sad truth in this great land of opportunity that some kids, who by sheer dumb luck live in Massachusettes will get one of the very best public educations in the nation while other kids who are unfortunate enough to be born in Missouri will get one of the worst educations in the nation. We in Wisconsin should count ourselves lucky to be in the middle of the pack, even if they'd like us to think we're "tied with third with Nebraska on the ACT." That's only true if you qualify the data to exclude all of the highest performing states. We are really tied for 17th place with Nebraska on national ACT performance data. It seems that the land that has produced so many marvels throughout history, both sociologically and technically, ought to be able to come up with a plan to solve this inequitable distribution of one of our nation's most prized cornerstones: public education.

No comments: